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As Trade Tensions Rise With US, China Prepares to Retaliate

As trade tensions grow between the United States and China, there is concern among foreign companies in China that a possible trade war between the two countries could leave them caught in the crossfire.

President Donald Trump has been ratcheting up trade pressure on China, and a senior administration official has said the U.S. leader would be “emphasizing the fair and reciprocal nature of trade” in his State of the Union speech Tuesday.

Already, Trump has issued what some believe could be the opening salvo in a more intense showdown over trade, recently slapping stiff import tariffs on solar panel imports and washing machines. More trade actions could be announced soon.

“If that does go forward, I have been told by certain officials [in China] that yes, definitely, there will be retaliation,” said William Zarit, chairman of the American Chamber of Commerce in China, or AmCham China. “And what we’ve been telling our interlocutors is that if there is some kind of tariff and if the Chinese do want to retaliate, they do so maturely and with precision so as to not actually adversely affect their own economy.”

Zarit spoke on Tuesday at the launch of AmCham China’s annual survey on the business climate in the world’s second-largest economy. The survey for 2017 was conducted at the time of Trump’s visit late last year and cited growing optimism among members about the outlook for growth and investment in China.

Seventy-eight percent of the respondents said that positive relations between the U.S. and China are extremely important or very important, compared with 64 percent in 2015.

Three out of every four companies surveyed, however, said they still feel unwelcome in China. One key driver of that perception – regulatory barriers for foreign companies and unfair treatment relative to local ones, the survey found.

While no one wants a trade war, the survey found that more than 60 percent are advocating for the U.S. government to take actions to help correct trade imbalances.

Zarit said some have grown weary of years of negotiations on trade and investment issues between the governments and think Washington should use pressure.

“Strictly just dialogue has not really brought much in terms of progress. So, perhaps some pressure will help get us more progress to a more balanced economic and commercial relationship,” he said.

Seeking ‘level playing field’

According to the survey, 27 percent of its business members “advocate more strongly for a level playing field” for U.S. businesses in China. Another 19 percent want the U.S. government to “apply investment reciprocity as an approach to improve market access in China.”

A third group comprising 14 percent of AmCham members wants Washington to pursue a new multilateral trade agreement that would include the U.S. replacing the Trans-Pacific Partnership, or TPP.

One of Trump’s first actions in office was to pull the United States out of the TPP, but last week at the World Economic Forum in Davos, he hinted at a possible path back toward the TPP or something similar to the trade agreement.

Lester Ross, head of AmCham China’s policy committee, said American companies should be ready to deal with harsh measures and other forms of retaliation from Beijing.

“I don’t think any company wants to absorb or make a sacrifice for trade relations, but I think some companies will inevitably suffer some repercussions if there are trade frictions between the two countries,” he said. “They [U.S. companies] have to consider that possibility.”

Ross said retaliation from the Chinese government could include measures targeting the airline and agriculture sectors, and possibly affecting industries and communities where support for Trump was strong during the elections.

“It would be likely that they [Chinese] will target sectors that have political resonance in the United States, and particular products or commodities,” he said.

Rising friction over trade is not the only way companies doing business in China could be caught in the middle.

As part of Trump’s efforts to exert more pressure on North Korea, he previously has complained that China is not doing enough and used the threat of possible trade actions as a carrot and stick to try to get Beijing to do more.

Some analysts said the Trump administration might go slowly on trade remedies against China if Beijing does more to help Washington in resolving the North Korea problem.

But that, in turn, could distract Washington from its plans to deal with what the U.S. sees as Beijing’s unfair trade practices.

Zarit said AmCham members also want the North Korea issue to be resolved as peacefully as possible.

“We also hope that our needs for addressing the structural imbalances in the relationship are not sacrificed in the process,” he said.